February 19, 2012
Wrong credit reports not even the worst problem
Brenda Faith Campbell’s financial life was devastated after credit reporting agencies mistook her for someone with a similar name and a trail of unpaid bills. The Missouri resident was denied credit. Collection lawyers tried to garnish her wages. Eight months of trying to clean up the mess by herself failed. It took a lawsuit and two grueling days of trial before her case settled and the mistakes were corrected.
Campbell is one of scores of victims of credit report errors unearthed in 2012 by The Columbus Dispatch, which found egregious cases involving mistaken identities, paid debts marked as delinquent and people wrongly reported as dead.
While problems as flagrant as Campbell’s are not common, they are common enough to affect millions of people. A new Federal Trade Commission report found that one of every five consumers studied had an error that was corrected by one of the top three credit reporting agencies, Equifax, Experian and TransUnion. For 5 percent of all consumers, the error was substantial enough to cost them money by lowering a credit score and triggering higher rates for auto loans, insurance and possibly other financial products. That 5 percent represents 10 million people.
However, large as it is, the number of errors is not even the worst problem. No one would expect a business dealing with billions of bits of data — supplied by thousands of lenders and collection agencies — to get everything right.
The bigger scandal is the nightmare some consumers go through to try to correct a mistake in a system that holds such sway over their ability to obtain mortgages, car loans, credit cards, rental apartments and student loans.
A 1970 federal law requires the credit reporting agencies to investigate when consumers alert them to an error. Fixing errors, though, depends on how they interpret the word investigation. For most errors, credit reporting employees reduce complaints to a two-digit code and leave the lender, collection agency or whoever supplied the incorrect information as the sole judge of whether it’s correct.
That’s no way to sort out a dispute, as some courts have ruled.
Consider the case of Carmen Dixon-Rollins, a Philadelphia police officer who settled a dispute with a landlord in 2004 by paying $530, but couldn’t get TransUnion to remove the debt from her credit report. She provided ample evidence of payment, but all TransUnion did was forward a routine error form to the collection agency — the original source of the inaccurate report — and took the agency’s word that the debt still was owed.
After a trial in 2010, a federal judge upheld the jury’s verdict against TransUnion, ruling that the company “negligently and willfully failed to reinvestigate” the officer’s claim, and allowed punitive damages of $270,000. The judge underscored a 1997 ruling by a higher court warning that the agencies are responsible “for more than merely parroting information received from other sources.”
Apparently, that lesson hasn’t sunk in. In 2012, for the first time, a new federal agency, the Consumer Financial Protection Bureau, got authority to regulate the credit reporting agencies and provide rules on what a real investigation of errors should mean.
It can’t happen fast enough.
Brenda Faith Campbell should not have had to go to court to get her credit reports unmixed from a woman who lived in a different county, with a different middle name, a different birth date, a different job and a different Social Security number.
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